The American Journal of Managed Care > September 2017 – Published on: September 18, 2017

In-Gap Discounts in Medicare Part D and Specialty Drug Use

Jeah Jung, PhD; Wendy Yi Xu, PhD; and Chelim Cheong, PhD

This study examined the early impacts of closing the donut hole in Medicare Part D.

ABSTRACT

Objectives: Specialty drugs can bring significant benefits to patients, but they can be expensive. Medicare Part D plans charge relatively high cost-sharing costs for specialty drugs. A provision in the Affordable Care Act reduced cost sharing in the Part D coverage gap phase in an attempt to mitigate the financial burden of beneficiaries with high drug spending. We examined the early impact of the Part D in-gap discount on specialty cancer drug use and patients’ out-of-pocket (OOP) spending.

Study Design: Natural experimental design.

Methods: We compared changes in outcomes before and after the in-gap discount among beneficiaries with and without low-income subsidies (LIS). Beneficiaries with LIS, who were not affected by the in-gap discount, made up the control group. We studied a random sample of elderly standalone prescription drug plan enrollees with relatively uncommon cancers (eg, leukemia, skin, pancreas, kidney, sarcomas, and non-Hodgkin lymphoma) between 2009 and 2013. We constructed 4 outcome variables annually: 1) use of any specialty cancer drug, 2) the number of specialty cancer drug fills, 3) total specialty drug spending, and 4) OOP spending for specialty cancer drugs.

Results: The in-gap discount did not influence specialty cancer drug use, but reduced annual OOP spending for specialty cancer drugs among users without LIS by $1108.

Conclusions: In-gap discounts in Part D decreased patients’ financial burden to some extent, but resulted in no change in specialty drug use. As demand for specialty drugs increases, it will be important to ensure patients’ access to needed drugs, while simultaneously reducing their financial burden.

Am J Manag Care. 2017;23(9):553-559

Takeaway Points

A provision in the Affordable Care Act provided discounts for prescription drug spending in the coverage gap in Medicare Part D. The effects of this in-gap discount among specialty cancer drug users were:

The in-gap discount did not increase the likelihood of using a specialty cancer drug.

The in-gap discount did not change the number of specialty cancer drug fills among users.

The financial burden of some cancer patients remains high, even with the in-gap discount.

Spending on prescription drugs has increased rapidly—by 14% in 2014—whereas spending on other medical care increased by only 4.1% to 4.6%.1,2 A driver of this growth is the category of specialty drugs, in which spending increased by 30% in 2014.1 Specialty drugs do not have a single definition, but generally have at least 1 of the following characteristics: high prescription price, identification as a biologic, use in the treatment of complex conditions, or requiring special handling and delivery.3,4 Only a small share of the population is currently affected by conditions for which specialty drugs are used. However, specialty drugs account for a large share of total drug spending due to their high price alone.1 Facing this cost pressure, payers place higher cost-sharing requirements for specialty drugs than traditional drugs, raising concerns about patients’ access to needed specialty drugs and the financial burden associated with these drugs.3,5,6

Consumer cost sharing is commonly used to manage prescription drug use and spending, and prior studies suggest that patients are less likely to use traditional prescription drugs when cost sharing is higher.7 For specialty drug use, the results of a recent study showed that commercial enrollees’ responsiveness to cost sharing was relatively small.8 Evidence regarding how elderly individuals in Medicare respond to cost sharing is sparse, although conditions for which specialty drugs are used are related to age. Part D plans use high cost sharing for specialty drugs as a way to manage utilization among beneficiaries without low-income subsidies (LIS).9 However, high cost sharing would be counterproductive if those beneficiaries did not respond to price in specialty drug use due to potential benefits of specialty drugs or the absence of viable substitutes3,8—it would simply put patients at financial risk. Yet, few studies have examined the relationship between cost sharing and specialty drug use among elderly beneficiaries without LIS.

Studying responses to specialty drug benefits is challenging because Part D plan choice is voluntary, which can lead to biased estimates if specialty drug users are likely to enroll in plans with low cost-sharing benefits. We used a natural experimental design, leveraging an exogenous change in the Part D benefit, which enabled us to avoid selection in plan choice to fill in the Part D coverage gap introduced by the Affordable Care Act (ACA). This provision led to a change in benefit generosity that particularly affected specialty drugs because it focuses on a large decrease in cost sharing for brand name drugs (and thus, specialty drugs).

The presence of a coverage gap in the standard Part D benefit, in which beneficiaries were responsible for the full drug spending prior to 2011, had been criticized for having posed a financial burden to enrollees.10,11 In response, a provision in the ACA stipulated that the gap be gradually filled until it closes in 2020. This provision reduced the in-gap coinsurance rate to 50% for brand name drugs and 93% for generic drugs in 2011. In-gap cost sharing for brand name drugs gradually decreased to 47.5% between 2013 and 2014 and to 45% between 2015 and 2016, accumulating in a 5 percentage point decline per year thereafter. Similarly, coinsurance for generic drugs has decreased by 7 percentage points every year. In 2020, beneficiaries will be responsible for 25% of branded or generic drug spending until they reach the level of “catastrophic” coverage.

This Part D in-gap benefit change is designed to mitigate the financial burden of beneficiaries who reach the coverage gap due to increased drug spending. Among these are specialty drug users without LIS. Part D defines specialty drugs as those whose negotiated monthly price is greater than $600 and allows plans to place those drugs in a separate “specialty” tier in the pregap phase. The cost sharing of a specialty tier in the pregap phase is usually 33% coinsurance of the overall drug cost, higher than the standard of 25%. Further, specialty drug users often pass through the initial coverage stage and hit the gap with their first prescription fill due to the high prices of specialty drugs. The ACA discount is thus likely to relieve the financial stress of specialty drug costs among beneficiaries without LIS. Beneficiaries with LIS do not face financial burdens related to specialty drugs because their drug spending is mostly paid by Medicare. A prior study showed that patients with chronic myeloid leukemia (CML) with LIS were more likely to initiate specialty drugs after diagnosis than non-LIS patients, possibly due to the lack of financial barriers among patients who are prescribed specialty drugs.12

The 50% in-gap discount for branded drugs can be a sizable reduction in out-of-pocket (OOP) spending to specialty drug users without subsidies. It implies a decrease of $1860 in OOP spending for a beneficiary who had the Part D standard benefit in 2015 and passed through the gap in the year. Recent data showed that the average OOP spending on specialty drugs decreased from $2376 in 2010 to $1758 in 2011, a 26% reduction for Part D enrollees.13 However, patients with cancer may face larger OOP spending due to the high cost of specialty cancer drugs, and 2 analyses of Part D plan formulary files suggested that OOP spending of specialty cancer drug users could reach up to $12,000 in 2016 even with the in-gap discount.6,14

Our study examined how the in-gap discount affected OOP spending for specialty cancer drugs among the elderly during the first 3 years of implementation. We focused on specialty cancer drugs, which comprise one-third of total specialty drug spending.15 We also examined how the in-gap discount affected specialty cancer drug use because reduced in-gap cost sharing can encourage beneficiaries to continue to take recommended medications even when they have reached the gap. Beneficiaries may also begin taking specialty drugs if they make decisions regarding drug consumption based on total OOP spending. However, the ACA provision lowers cost sharing only in the coverage gap; it does not change cost sharing for the first fill. If patients cannot afford cost sharing in the initial coverage stage, they would be unlikely to use a specialty drug at all and the in-gap discount would be irrelevant. We examined this possibility by analyzing whether the in-gap discount changed the probability of using any specialty cancer drug and the number of specialty cancer drug fills among users.

METHODS

Sample and Data

The study population entailed randomly selected elderly Medicare beneficiaries with cancer between 2009 and 2013. We focused on 6 relatively uncommon cancer types (leukemia, kidney, pancreatic, skin, sarcoma, and non-Hodgkin lymphoma) for which specialty drugs are used, but understudied. Medicare claims data were searched to select a random sample of fee-for-service beneficiaries with these identified cancers, based on International Classification of Diseases, Ninth Revision, Clinical Modification diagnosis codes and at least 1 inpatient or skilled nursing facility claim or 2 outpatient or carrier claims in a given year. Our analysis included beneficiaries who had both Part A and Part B coverage and stayed in the same standalone prescription drug plan (PDP) for the entire calendar year. We excluded beneficiaries in Medicare Advantage Prescription Drug Plans (MA-PDs) because their claims data were not available.

The primary data were Part D Prescription Data Event (PDE) Files, which contained records on prescription drug fills by enrollees, including National Drug Code, days supplied, and spending (ie, beneficiary payment, plan payment, and subsidy amounts, where applicable). All drug spending variables were adjusted to 2013 dollars based on the Consumer Price Index for prescription drugs.

We augmented PDE files with Medicare Master Beneficiary Summary Files, which provided beneficiary information (ie, residence, demographic characteristics, and chronic condition indicators); Part D Plan Characteristics Files and Plan Formulary Files to get plan benefit attributes; and zip code-level income/education and county-level healthcare resource information from the 2010 American Community Survey and Area Health Resource Files, respectively. This study was approved by the Pennsylvania State University’s institutional review board.

Identifying Specialty Cancer Drugs

We identified Part D specialty drugs as products placed in a specialty tier at least by 1 plan, based on Part D Plan Formulary Files.13,16 To identify cancer drugs (antineoplastic agents, including chemotherapy, immunotherapy, and hormone therapy), we used 2 sources: 1) organizations supporting patients with cancer or cancer research (eg, the National Cancer Institute and the American Cancer Society) and 2) the Wolters Kluwer Health Medi-Span MED-file v.2,17 which groups drugs by therapeutic class. By cross-walking the lists of Part D specialty drugs and antineoplastic agents, we identified Part D specialty cancer drugs. Table 1 shows the top 10 specialty cancer drugs, by utilization, in the study population.

Empirical Approaches

We compared changes in specialty cancer drug use and OOP spending before and after the in-gap discount between non-LIS and LIS beneficiaries. LIS patients, who did not have a coverage gap, were used as the control group because they were not affected by the in-gap discount. This approach is known as a difference-in-differences method; it captures the in-gap discount effect on outcomes in the treatment group (ie, non-LIS beneficiaries) by controlling for secular trends.

We constructed 4 outcome measures: 1) use of specialty cancer drugs in a given year (a binary indicator), 2) the number of specialty cancer drug fills during the year, 3) annual total spending for specialty cancer drugs (ie, the sum of patient share, plan payment, and subsidy amounts for LIS enrollees), and 4) patient OOP spending for specialty cancer drugs.

Control variables included patient characteristics (ie, age, gender, race, buy-in status, and health status measured by the presence and number of chronic conditions), plan characteristics (ie, whether the plan offered more generous benefits than the standard package or in-gap coverage), and market factors (ie, median household income, percent college educated, hospital beds and admissions per capita, Medicare Advantage plan payment rates, the number of doctors per capita, and region indicators). We also included year dummies to control for time-specific effects that are common to all study samples. Further, we used group-specific (ie, LIS vs non-LIS) year fixed effects to control for potential differential year effects between the 2 groups.